Moody's Investors Service said it upgraded more not-for-profit healthcare debt issuers than it downgraded in the second quarter, the second straight quarter that upgrades have outpaced downgrades.
Should not-for-profits' financial health hold through December, it would be the first time since 1997--and only the fourth time since 1989--that upgrades outpaced downgrades for an entire year. "It's pretty unusual what we're seeing right now," said Moody's Senior Vice President Lisa Goldstein.
From April to June, Moody's upgraded 19 not-for-profit hospital and health system bonds worth a combined $6.4 billion, according to a report from the New York-based ratings agency. Ten not-for-profit healthcare bond issues worth a total of $1.5 billion were downgraded in the same three-month period; none of the downgraded issues slipped from investment to speculative grade.
The Moody's report said the sector's focus on acute-care operations has created "sustainable financial improvement," forecast a stable 2005 and cited a high number of ratings--91--that held steady in the second quarter.
In recent years, ratings agencies' confidence in not-for-profit borrowers had flagged. Moody's downgraded far more bonds than it upgraded in the late 1990s and early 2000s, thanks to an "avalanche of the alphabet," said Goldstein, referring to the acronyms for a handful of money-draining challenges that hospitals faced--such as Y2K, HMOs and the 1997 Balanced Budget Amendment, which overhauled and cut Medicare reimbursement and eroded hospital finances.
Hospitals and health systems face further cuts to Medicare and Medicaid as Congress moves to rein in the nation's budget deficit, Goldstein said. Future cuts seem certain, although they likely won't be as deep as those passed in 1997, Goldstein said. "It's not an if, but when," she said. "We don't know how much and we don't know when," she continued, creating uncertainty in the industry.